S&P Wants Early Picture of Pension
Problems

Rather than run the risk of a last-minute surprise,
rating agency Standard & Poor’s has asked companies
with defined benefit pension plans to submit data on both
the performance and allocations of those programs as of
June 30, according to Dow Jones.

S&P routinely receives that information as part of
its review of company financials, however those details are
usually not provided/requested until year-end.
However, reports of a growing disconnect between the
accrued pension liabilities and the pension funds in trust
to fulfill those obligations have investors nervous.

Earnings Impacts

Those pension obligations have not always been a drag on
corporate earnings, quite the contrary. A Milliman
USA study of 2001 earnings reports of 50 large US companies
found that they included $54.4 billion of profits from
pension funds, without which these companies would have
posted a collective loss of $35.8 billion.

Still, after years where soaring markets provided a
funding cushion for pension plans, S&P now worries that
corporations may be forced to dig deep to cover funding
shortfalls from the bottom line, and with good
reason. Even before the sustained market downturn of
2002, nearly two-thirds of the nearly 400 fund officials
responding to
PLAN SPONSOR’s
2002 Defined Benefit Survey told us that they planned to
make contributions to their defined benefit plans within
the next 12 months (see
Half Empty Half
Full
).

And it’s not just large programs, either. Among
plans with less than $10 million in assets, three-quarters
mean to pour in money this year, up from the 69% who
planned to make funding contributions last year, according
to the survey.

Future Tense

Not that there is necessarily a reason to panic,
according to industry professionals. While
recent reports from the Pension Benefit Guaranty Corp.
(PBGC) indicate that unfunded pension liabilities for
private companies rose to a record $111 billion at the end
of 2001 from $26 billion in 2000, these are long-term
obligations. Furthermore, that shift is not just a
function of declining stock markets, some is also
attributable to the PBGC’s use of the 30-year Treasury rate
to determine pension fund returns, according to industry
experts.

More recently, the decision of several large pension
funds to increase their assumed rate of growth in pension
assets has come under criticism (see
The Great Oz
Exposed
).